Minimum wage policies and economic effects

Minimum Wage

Supporters of the minimum wage which sets the lowest wage that employers may legally pay to workers argue that it is the fair thing to do because workers need a minimum amount of income to survive and because it prevents businesses from exploiting workers who are willing to work for less than this required amount. While well intentioned, proponents are actually supporting a policy that is detrimental to low-skilled workers.

The major problem with minimum wage is that it costs the economy thousands of jobs, so that many workers can't find a job at all. This happens for many reasons. First, in our global economy, businesses in our country that are forced to pay a high wage for low-skilled job are more likely to outsource the jobs to foreign countries where labor is cheaper. Further, foreign companies who have access to lower-cost labor have a distinct competitive over American companies who are forced to pay more than free-market wages and this reduces employment opportunities in this country even more. A minimum wage also gives businesses incentives to use fewer employees and to look for less expensive labor substitutes such as automation through technology. and, the minimum wage can force many small companies who operate on thin profit margins out of business.

Thus, the minimum wage, an artificial wage subsidy for unskilled workers, means job losses. This is a commonly accepted view by most economic experts. According to a 1978 article in American Economic Review, 90% of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers (Kearl, J.R., et al. (1979). During troubling economic times like today, it's better to have workers employed at the rate the market will bear than not at all.